PepsiCo: Q4, 2019 Results Beat Expectations as Beverage Portfolio Expands

PepsiCo beat analyst expectations in its fourth quarter and full year 2019 earnings report yesterday, with its beverage division posting its growth rate since 2015.

The company overall reported Q4 net revenue growing 5.7% to $20.64 billion and 3.9% for the full year to $67.16 billion; meanwhile, organic revenue grew 4.5% for the full year versus 3.7% in 2018. Operating income rose 11% to $10.29 billion. PepsiCo Beverages North America reported 3% organic revenue up 3% for the full year while Frito-Lay reported 3% net revenue growth.

Despite stronger-than-anticipated earnings results, PepsiCo’s 2020 outlook fell below analyst projections at 4% organic growth revenue and 7% core constant currency earnings per share growth. The company projects adjusted earnings per share of $5.88 for the year, falling short of analyst predictions of $5.95.

PepsiCo stock prices fell Thursday morning shortly after the market open, but by the end of day had recovered to $146.47 per share. At press time on Friday, PepsiCo stock was up 0.075% to $146.58 per share.

Speaking to investors on an earnings call yesterday, PepsiCo CEO Ramon Laguarta said part of the fiscal year growth stemmed from the company’s “Faster, Stronger and Better” expansion and sustainability initiative, which included investments into new production facilities and distribution infrastructure while decreasing environmental impact. According to Laguarta, the company intends to source 100% of its raw agricultural materials — including potatoes, whole corn, oats and oranges — from sustainable farms by the end of 2020.

The initiative also included a sizable investment in expanding the brand’s beverage portfolio and operations. In April, PepsiCo completed its $465 million acquisition of Muscle Milk maker CytoSport. As well, the company put an increased focus on innovation, rolling out new Gatorade Zero, Mountain Dew Game Fuel, and Bubly products throughout the year, which according to Laguarta have combined delivered more than $1 billion in retail sales.

Brand name Pepsi products reported a sixth consecutive quarter of net revenue growth with Pepsi Zero Sugar delivering increasing by double digits.

“The business benefited from improved local market focus and execution driven by our new field structure, increased go-to-market capacity, significantly stepped up advertising support, innovation and additional selling resources,” Laguarta said on the call.

The beverage division benefited from several large partnership deals the company entered throughout the year, including with JetBlue, Carnival Cruise Lines and Regal Cinemas. As well, the company reported a double-digit increase in marketing spend for both Q4 and the full year with strong focuses on Pepsi, Gatorade and Mountain Dew.

Laguarta noted that PepsiCo plans to launch its coffee-infused cola line, Pepsi Cafe, for a limited time in April. As well, the company intends to expand its recently launched Gatorade subline Bolt24 and will focus on increasing sales for Mountain Dew Zero Sugar.

“We will continue to invest back into the business to evolve our portfolio and transform our value chain,” he said. “[We will] build next-generation capabilities, particularly leveraging technology to enhance our insights, speed and precision; grow our talent and simplify our organization to be more consumer and customer-centric; invest in our brands, both large and emerging; and reduce our cost structure to free up resources to fund our investments.”

Speaking during the call’s Q&A portion, Laguarta noted that Gatorade is currently among the company’s best growth drivers in beverage. The brand saw high single-digit growth during Q4, he said, delivering over $600 million in sales led by Gatorade Zero.

“Zero has driven a lot of new consumers into the sports category, and so it’s not like a summer-related growth of Gatorade,” he said. “[There is] more penetration of the brand into consumers that were not consuming Gatorade. So we see that as sustainable. Actually, it accelerated during Q4.”

Laguarta also noted that the company is looking to increase its play in the energy drink space and, in addition to the launch of Mountain Dew Game Fuel, intends to “develop and reinvest” in its partnership with Nevada-based brand Rockstar Energy, which has seen steady declines over the past several years. He also cited the announcement of low-caffeine SKUs for Bubly and Bolt24 as opportunities to “participate in the caffeine space from multiple dimensions.”